The 1% Rule for Rental Properties

The Tactic: If monthly rent doesn't equal at least 1% of purchase price, skip the property immediately.

Why It Works: The 1% rule acts as a cash flow pre-filter. Properties below this threshold rarely generate positive monthly cash flow after mortgage, taxes, insurance, and maintenance. While not perfect, it eliminates the vast majority of money-losing deals before you waste time on detailed analysis.

How To Do It:

Example: $200,000 house needs $2,000+ monthly rent to pass. If comparable rentals show $1,600, skip it.

When to Break the Rule: Markets like San Francisco or Manhattan rarely hit 1% due to appreciation potential. In these cases, use 0.7% as your floor, but expect negative cash flow initially.

Expected Result: You'll eliminate 19 out of 20 properties within 30 seconds each, leaving only deals worth deeper analysis. This turns property hunting from a weeks-long slog into a focused search for actual opportunities.

The Reality Check: Properties that barely hit 1% often become break-even after vacancy, repairs, and property management. Aim for 1.2-1.5% for comfortable cash flow cushion.